RegulationAccounting StandardsBA profits take off under IFRS

BA profits take off under IFRS

Airline giant sees profits take off under new accounting rules

Operating profits at British Airways have skyrocketed by £16m, thanks to the
switch to international financial reporting standards, the airline has
announced.

Under IFRS for the year ended March 31 2005, BA’s operating profit increased
from £540m under UK GAAP to £556m, while profit before tax increased by almost
£100m from £415m to £513m.

A BA spokesman said the £16m figure was a ‘small change’ and that numbers go
‘up and down’ regularly, however, he added that last September’s disposal of
BA’s 18.25% stake in airline rival Qantas had boosted the company’s profits
before tax figure by close to £100m.

‘This relates to different types of accounting treatment and the disposal of
our Qantas shares, and is very similar to when Air France disposed of its shares
in KLM. Under IFRS we had to write back our goodwill adjustments,’ he said.

A BA statement said that the sale resulted in a loss of £11m but that under
IFRS, the disposal of Qantas resulted in a £97m ‘improvement in the income
statement for 2004/05’.

This reflected a £59m decrease in the net assets of Qantas and the reversal
of the requirement to write back goodwill previously written off to reserves of
£59m. The airline also said this was partially offset by the write-off of
exchange gains on the investment since 1 April 2004 of £21m.

BA’s chief financial officer, John Rishton, however, dismissed the impacts of
new accounting rules on the airline’s income statement as ‘minor’, but said that
there would be a ‘significant impact’ on its balance sheet due.

‘Net assets under IFRS are reduced by £1.3bn to £1.4bn, mainly due to moving
the pension deficit on to the balance sheet. It was previously fully disclosed
as a note to the report and accounts,’ Rishton added.

A statement said that the adoption of IFRS represented an ‘accounting change
only’ and did not affect the underlying operation of the business or the
airline’s cashflows for 2004/05.

Chris Avery, airline analyst at JP Morgan, said he ‘wasn’t surprised’ at BA’s
figures and praised the airline for its detailed statement. ‘There aren’t that
many changes to the profit and loss account, but the airline market is facing
increased volatility going forward. The next few months will be interesting.’

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